High Court OKs Ariz. Tax Credit For Religious Schools

A deeply divided U.S. Supreme Court ruled Monday that taxpayers have no legal right to challenge a tax break worth millions to donors supporting private religious schools. The 5-4 decision left intact an Arizona tax subsidy that was enacted because the state constitution forbids direct aid to religious schools.

Justice Anthony Kennedy, writing for the five-justice majority, said that taxpayers may challenge a direct legislative appropriation for religious schools, but not a tax credit.
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Justice Anthony Kennedy, writing for the five-justice majority, said that taxpayers may challenge a direct legislative appropriation for religious schools, but not a tax credit.

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Arizona is one of many states that have a state constitution barring direct aid to religious schools, including vouchers. These provisions date back more than a century.

To get around the ban on vouchers, Arizona enacted a law that allows residents to take a tax credit for money given to private school scholarship funds known as "school tuition organizations."

A tax credit is different from a tax deduction. The credit comes directly off the tax bill on a dollar-for-dollar basis, so a $500 donation to a school tuition organization allows the donor to take $500 off his owed taxes. In contrast, a charitable donation of $500 to a private school would be worth no more than one-third of that amount in tax deductions.

Under the Arizona law, more than $50 million was donated annually to student tuition organizations, which, in turn, directed the money to private schools, at least two-thirds of them religious schools.

A group of taxpayers challenged the tax credit in court, contending that it amounted to an unconstitutional state subsidy for religious schools.

But on Monday, the Supreme Court ruled that the taxpayers have no legal right to bring such a challenge.

Justice Anthony Kennedy, writing for the five-justice majority, said that taxpayers may challenge a direct legislative appropriation for religious schools, but not a tax credit. He conceded that a tax credit and a direct government expenditure "may have similar economic consequences," but he said a tax credit is different because any injury to the disagreeing taxpayer is "speculative," and the money is directed by private individuals, not the state.

Reaction To The Ruling

Civil libertarians reacted to the decision with dismay. Arizona State University law professor Paul Bender, who represented the Arizona taxpayers, says the court's opinion defies reality.

"The state has a budget deficit of a billion dollars, so when $100 million doesn't come into the Treasury, the rest of the state's taxpayers have to make up for that," he says. "The idea that [the tax credit] doesn't affect the rest of the state's taxpayers is just fantasy."

But school choice advocate Timothy Keller, of the Institute for Justice, says that "only looks at one side of the ledger," adding, "It is much more cost effective to educate children in private schools."

Justice Elena Kagan, in a blistering dissent — her first dissent since joining the court — said Monday's decision "devastates" the ability of taxpayers to challenge government actions that favor religion.

In reality, she said, there is no difference between a tax credit and a direct appropriation. "What is a cash grant today can be a tax break tomorrow," and the court's decision, she charged, "offers a road map — more truly, just a one-step instruction — to any government that wishes to insulate its financing of religious activity from legal challenge."

Impact On Church-State Separation

Monday's ruling follows a 2007 decision that barred challenges to President George W. Bush's faith-based initiative because it used discretionary funds in the executive branch. Civil libertarians suggested on Monday that the ruling in that case, combined with the Arizona ruling, has the effect of eroding the constitutional separation of church and state.

But Stanford University law professor Michael McConnell says these decisions "probably [do] not change the ultimate outcome of any cases," given the current Supreme Court's more accommodating view of church and state.

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Dismissing the challenges on the basis of legal standing, rather than on the merits, he says, "just means [the cases] are going to be resolved at a slightly earlier stage in the litigation."

University of Michigan law professor Douglas Laycock isn't so sure. He argues that the ruling opens another — and more politically appealing — avenue for legislators to support religious schools.

Although the Supreme Court upheld school voucher programs nearly a decade ago, he notes most states have not adopted voucher programs because they cost the state money.

"It is mostly Republicans who support these aid-to-religion programs, and Republicans don't want to raise taxes to pay for vouchers," Laycock says. "But if they can do it through a tax credit, they can support religious schools and claim it's a tax cut all at the same time."

School choice advocate Keller may not agree with that characterization, but he does agree that Monday's ruling will "embolden" other states to take similar action.

Indeed, he says, eight states are actively considering similar laws. Six, in addition to Arizona, have already adopted them.